Financial Planning Advices » Financial Terminology » What is Finance Charge?
What is Finance Charge?
No credit comes for free. A term related to the cost of borrowing the money is finance charge. It includes not only the interest you are charged but also other charges, such as service fees for transactions, late fees, etc.
In order to calculate the finance charge the values of the APR and the balance are taken.
There are different methods by which finance charge can be calculated. The most widely used ones are the average daily balance and the two-cycle average daily balance models. Creditors are obligated to disclose the method they use for the finance charge calculation as required by the Truth in Lending Act.
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